Anglo-German Foundation - Creating Sustainable Growth in Europe – Mid-point events Friday, 30 November 2007 Multipillarism compared: assessing the impact on employees of pension system change in Britain and Germany Paul Bridgen, Traute Meyer (University of Southampton, UK), Michaela Willert (Freie Universität Berlin)

Bridgen/Meyer/Willert Introduction Mapping Change Outcome of change Contribution to sustainable growth Dynamics of pension reforms in Europe: “Passive privatisation”, indvidualisation British liberal pension regime Second pillar retrenchment: from defined benefit to defined contribution schemes But: higher basic state pension and more compulsion in occupational schemes planned German conservative pension regime First pillar retrenchment: from social insurance to multi- pillarism

Bridgen/Meyer/Willert General questions Assessing the impact of change for citizens Evolution of change Pension scheme and savings schemes features Future retirement incomes Explaining the developing pattern of non-state provision How do social policies contribute to sustainable growth? Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Mapping change - Britain Change: db schemes lose dominance in FTSE100 companies But: change is sector specific Shift to dc pioneered by financial services, Shift in retail sector: 2002/3 Manufacturing and Energy/Water remain dominated by db and hybrid schemes Db remains dominant in public sector State facilitation of ‘Personal Accounts’ Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Mapping change - Germany Public retrenchment Expansion of voluntary occupational and personal schemes, often integrated into collective agreements DC schemes in the majority in the private sector, low employer contribution rates. DB schemes in public sector, higher employer contribution rates Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Comparing change in Britain and Germany Since 2001 Germany‘s regulatory regime has moved closer to the British Typical features Risk sensitive public pension without poverty threshold Voluntary occupational sector Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Micro-simulation of retirement income for 3 women & 3 men Earnings: 0.5, 1, 1.5 of gross annual wages while in work Labour market entry age: 18 (0.5), 20 (1), 24 (1.5) Exit: 65 Start of career: 2007 (0.5), 2009 (1), 2011 (1.5) End of career: 2054 Women: 2 children (0.5, 1); 1 child (1.5) 2 years economically inactive per child, then part-time work until 65 (0.5, 1) or for two years, then full-time until 65 (1.5) Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Criteria for choice of occupational schemes Britain: FTSE100 – Large company schemes & public sector Germany: 11 DAX companies; sectoral scheme for finance, public, retail sectors; various manufacturing schemes Best, worst, and most typical schemes in Manufacturing, Finance, Retail, Public Sector Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Outcome of British and German pension regimes High social exclusion risk Pension inequality, caused by: Inputs Arbitrary factors Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Introduction Mapping Change Outcome of change Contribution to sustainable growth Pension inequality, caused by: inequality of employee contributions Outcome legitimised by belief in meritocracy inequality of pension scheme conditions by sector and employer Outcome not legitimised by meritocracy

Bridgen/Meyer/Willert Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Germany and Britain compared German pension regime no longer fits „conservative“ but is closer to „liberal“ regime type Both face problems of social inclusion Differences German state pensions more generous (Bismarckian legacy) British occupational pensions more generous, inter- intra sectoral variation high (liberal legacy) German inter-sector variation in occupational system lower, intra-sectoral variation insignificant (corporatist legacy). Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert How do both systems contribute to sustainable growth? Economic sustainability Competitiveness of companies Social sustainability Social inclusion and poverty Political sustainability Pension system supported by general consent Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Economic sustainability Britain: High Costs reduced, share price and investment protected by decline in company contributions and liabilities Industrial relations intact Germany: High Non-wage labour costs decreased through public pension cuts Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Social sustainability Britain: Low – perhaps moderate Occupational retrenchment increased risk of social exclusion Extent depends on success of current reform act Germany: Low Public retrenchment and low occupational benefits increased risk of social exclusion But: Good means-tested safety net in both countries Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Political sustainability Britain: Moderate Reformed system promises to address middle class insecurity and employer discontent Intra-/inter-sectoral inequality conflicts with discourses of fairness and meritocracy but no major protest Inequalities obscured Germany: Moderate Retrenchment increased general insecurity. But no major protest Inequalities obscured Collective bargaining defused conflicts? Introduction Mapping Change Outcome of change Contribution to sustainable growth

Bridgen/Meyer/Willert Sustainable? Overall: YES Change has meant a decline in pension levels for most Germans and a substantial group of British citizens But: no strong political pressure for change in Germany. In Britain pressure for reform has been defused by deferred reform at low cost to the state and large companies Introduction Mapping Change Outcome of change Contribution to sustainable growth